Beyond the Morality of Spending and Saving (Money) – Part 1

Readers of this blog will know that the austerity drive is based on faulty macroeconomics and austerity itself is a self-defeating economic strategy. Austerity relies and capitalizes on critical misunderstandings within economics, misunderstandings that were not conclusively and clearly enough debunked by John Maynard Keynes and others 75 years ago and in subsequent years. Austerity itself lames governments’ and private economic actors’ abilities to respond to the very conditions which austerity advocates claim that austerity addresses, trapping those who are suggestible within the confines of its confused worldview. Its self-defeating nature should be clearer to political leaders, to political pundits, to economic commentators and to the general public but it isn’t.

One can read in MMT and post-Keynesian blogs and publications about how the institutions of mainstream neoclassical economics have been ill prepared to fight austerity and have, on the contrary, provided a theory of money and government’s role in the economy that is used by austerity advocates all the time. Neoclassical economics assumes a basic “government-less” economy ruled by supply and demand, originating exclusively in the preferences of individuals. Left neoclassicals, like Paul Krugman, attempt valiantly to twist the structure of neoclassical economics so it will allow that, in fact, government is a crucial part of mixed economies and should not be unilaterally lamed by austerity dogma. Suggestions by left neoclassicals are made that various “externalities” to market transactions (such as environmental and community costs) be accounted for but these almost always appear “optional” rather than compulsory to economic policymakers within the neoclassical framework. Left neoclassicals’ arguments against the austerity wave are generally conditional and complicated, involving promises of future government budget balancing without a substantiation of the desirability of this goal. The effort left neoclassicals exert and the assumptions they use suggest to their right-wing opponents that they are engaging in “liberal” special pleading against a fundamental “hard money” view: that by the government spending money now, “our children’s future” is being mortgaged away, that we must automatically and in equal measure compensate in the future for government spending today. In the minds of austerity advocates ranging from the Right to the moderate Left, a finite stock of money is being “bled away” by government spending to the detriment of those in the future, who, they imagine, will need that postulated vital supply of stored value contained within monetary units.

The Greed Argument

Here and elsewhere, one of the primary arguments that is made is that austerian foolishness and willful ignorance of economics is motivated by short-sighted greed and, we assume, a fundamental lack of empathy with others stemming from that overwhelming greed. There is a lot to this argument: it appears that a select group of bankers, large investors, corporate leaders, and well-connected political patrons have profited handsomely during the downturn. Austerity advocates seem to have a very much conditional love of restricting government spending and government benefits: mega-banks get bailed out by government and the tax levels of the richest are to be pared while ordinary people suffer. Having benefited from a combination of government supports and the monetary rewards of the Ponzi economy that has emerged over the past decades, the austerians want to “freeze” existing debt contracts that put ordinary people and the real economy in a virtual “debtor’s prison”.

There are many among the powerful and influential, inspired by libertarianism, who attempt to appear consistent in their anti-government-spending stance by condemning future bailouts of corporations after the last bailout has occurred, while resolutely opposing bailouts of ordinary people which have yet to occur: having already eaten their fill, libertarians and pseudo-libertarians declare that everybody should go on a diet. Austerians’ proposals for cutting spending differentially target benefits that accrue to the public at large or are generally more helpful to ordinary people and the less advantaged while protecting the privileges of the elite. The ongoing process of selling off the assets of governments and public infrastructure to private interests sets the stage for a neofeudal “tollbooth economy” and reinforces the greed argument: austerians seem to be creating a crisis to divide existing public assets in the necessarily mixed economies of the developed world to be controlled and exploited in perpetuity by private financial interests.

Despite mounting evidence in its favor, the greed argument seems not to have (yet) won the day, as austerity advocates are still riding high in the public sphere and a powerful and coherent anti-austerity movement has not yet emerged. One reason for the ongoing immunity of the austerity drive from the greed argument is that there is no publicly articulated discourse on central media stages that combines these insights regarding the rapacity of the austerians and their patrons. Another reason is the commonplace, stereotyped nature of accusations of greed in political arguments: almost everybody in politics or political discourse more broadly is accusing their opponents of either mendacity or greed. The public has difficulty in determining whether one set of accusations of greed are better substantiated and more relevant to them than another set.

I am not at all opposed to pointing out how cupidity and greed are motivating the austerian political-economic coup d’état: anti-austerity activists and thinkers should continue to harp on how the benefits of austerity are, if they are at all existent, limited to a particularly short-sighted circle of the wealthy and dwarfed by their costs to the public at large. But “greed” in and of itself doesn’t explain how bloodlessly (so far) austerity advocates have taken over centers of power and compromised political and economic discussions. The political power that the austerity push has acquired could not have been achieved by openly espousing greed as a way of life: as it is, one side of the political spectrum is fully for austerity (so-called conservatives) and the other side is divided between those who are weakly for and those who are weakly “against” austerity. To assemble this pro-austerity coalition of nominal “liberals” and conservatives, the pro-austerity political consensus has had to have had additional arguments and bases of support.

TINA, Necessity, and Bullying the Public

Another argument that is common here and sometimes encountered elsewhere is that austerity advocates and the political elite have convinced the public that “There is No Alternative” (TINA), implying that austerity advocates “don’t like” austerity but it has to be done. The Thatcher government in its austerity measures 30 years ago made famous the TINA concept and Thatcher built her reputation as the “Iron Lady” in part by pushing past objections within her own Tory Party to implement austerity measures. The brilliant documentary filmmaker and social thinker Adam Curtis has attempted to lay bare and satirize the TINA mantra as applied to other efforts by elites to impose unpopular financial regimes in recent decades. Repeating the TINA acronym is somewhat descriptive but, I’m afraid, reinforces the message that it is trying to overcome. In fact, there IS an alternative, which MMTers and post-Keynesians are putting forward, therefore repeating the TINA acronym, without further elaboration, is, I believe, a mistake.

The consequence of TINA as a leadership ideology, which I think might be more the focus of discussion by critics of austerity, is that TINA leads to bullying the public both rhetorically and increasingly physically via the use of the surveillance and police power of governments to enforce austerity measures. Efforts at coercion and control are already occurring both in North America and Europe where austerity measures are being imposed via physical force and political intimidation in certain municipalities, regions, and nations as a whole. Austerity isn’t a necessity but is made to appear “necessary” via coercion as well as the ideological blinders of mainstream economics.

The TINA argument even with added mention of the coercion and bullying involved, though, is downstream in the austerity timeline from widespread initial political acceptance of the austerity doctrine as wise or worthy of support through the still semi-democratic process in many of the countries where it has taken hold. If austerity advocates’ thinking were properly exposed in the public sphere, they should be laughed off the hustings and roundly defeated at the voting booth. Austerity, unfortunately, has important “bridgeheads” in the public’s mind that touch deep chords both in mainstream economic thinking and in conventional morality, which are not entirely distinct entities within our culture.

Austerity and Neoliberal Hegemony

The austerity campaign has been so successful in, among other things convincing the public that TINA, because it flows from a 30 year “hegemonic project” by conservative politicians and financial interests, which we have come to call “neoliberalism”. In neoliberalism all good is supposed to come from private initiative and from people as private individuals, while everything related to public institutions that address and organize people as members of groups is a constraint on individual liberty, wealth accumulation, and self-realization. Stemming largely from the work of Hayek and others, neoliberalism sought to hang all the “bads” associated with the Soviet and Communist systems on the government institutions within the mixed economies of the West. Neoliberal ideologues after Hayek either ignored or wish to suppress that after the Second World War these mixed economies with large government sectors of the economy became rather successful, wealthy and somewhat egalitarian places to live. Neoliberal leaders like Reagan and Thatcher gave the public the impression that a still better society could be achieved by dispensing with the instrument of government as a manager of the economy and society more generally.

Neoliberalism was able to succeed in ideological and political battles because, among other things, the “Keynesian Revolution” of the 1930’s and 1940’s in economics was never able to completely transform mainstream economics. What is typically viewed and taught as “Keynesianism” is itself as a compromise with aspects of neoclassical economics which became bridgeheads for the eventual “ouster” of Keynes’s more “Keynesian” ideas. In the last three decades, under the influence of Hayek and other “Austrian” economic philosophers, a version of neoclassical economics subtly reasserted itself within the profession stripped of Samuelson’s synthesis of neoclassicism and ideas associated with though not necessarily from Keynes. The template for neoliberalism is specifically neoclassical microeconomics that was viewed by many to be the bedrock of economic “science”. The notion that microeconomics was more “rigorous” than macroeconomics, led to a decline in the status of macroeconomics within the neoclassical economic establishment. In the operative “Keynesian” synthesis of those years and afterwards, the notions of “perfect competition” as well as self-centered rational behavior as the only “true” economic activity undermined the somewhat more holistic view of the economy offered by (Keynes-inspired) macroeconomics.

One of most important political thinkers of the 20th Century of any political tendency was the Italian Marxist, Antonio Gramsci, whose observations about political strategy give us many of the tools we need to understand how austerity advocates have achieved their perverse dominance in the last several years. Despite his location on the left of the political spectrum, both Right and Left have taken lessons from Gramsci’s writings. Gramsci’s central contribution to political and social theory has been the concept of “hegemony” the idea that the creation of social institutions and ideas that directly and indirectly support the worldview of the ruling group can make an artificial or imposed social order seem “natural” or “commonsensical”. Via hegemony, ruling groups and classes, who in Gramsci’s view had primarily conflicting interests with the people they governed or economically exploited, could rule or exploit by popular consent or popular acquiescence and not so much via coercion and brute force. In the 1920’s and 30’s, Gramsci observed how Italian Fascists created a cultural movement that cemented their political dominance over Italy for two decades. For Gramsci, the construction of a hegemonic system involves constant political and cultural “work” to create the appearances of inevitability and naturalness of the political and economic ideas favored by the ruling group. The New Right of the last three decades has seemingly learned more from Gramsci than the current political Left, creating in the public’s eye the appearance of the naturalness and inevitability of neoliberal ideas.

The foundation for the hegemonic project of neoliberalism and now fiscal austerity was in part laid by neoclassical economics, which among other things, make neoliberal and now austerian policies seem “commonsensical”. If each person is held responsible for all aspects of their social destiny and are, in essence, “naturally” competing with everybody else for resources to satisfy their private “utility”, it becomes “natural” to cut away government supports and public social insurance programs, thereby allowing each to fend for themselves (as is “natural”). The catechism of neoclassical economics that is drummed into millions of undergraduates becomes the basis for a society that sees everybody simply trying to watch out for themselves and their immediate families and little else. Government becomes an interference in the ideal of “perfect competition” in markets. Austerity policies are simply the fullest expression of this approach to social policy and governing.

Ethics, Moral Advocacy and Economics

Yet the dominance of neoclassical economics in academia is in itself not a sufficient explanation for how neoliberalism achieved its hegemonic position. Neoclassical economics and the its neoliberal political expressions have built on elements of Western culture, stemming from the influence of Protestantism on the development of capitalism and the attitudes of Protestant sects regarding the role of saving vs. spending. Ethics as transmitted in Protestant-dominated countries seems to play a critical role in how the activities of saving and spending money are viewed, particularly in the current financial crisis.

The relationship of the disciplines of economics and philosophical ethics is much overlooked but crucially relevant to these matters. Adam Smith, arguably the founder of modern economics (Quesnay also has a claim), started out as a moral philosopher. In addition to modern economics’ historical origins, both economics and ethics are guides to social decision-making. Economists engaged in anything more than data collection and description at some point must either imply or state a definition of “the good” towards which their analyses are oriented. Furthermore economists, as are all social scientists, deal with a highly complex, dynamic and reflexive (observer affects the observed) object of study: humanity and complex human societies. When mathematical models or heuristics no longer provide a clear narrative or advice regarding these complex dynamics for the consumers of economic or other social scientific advice, an easy framework of interpretation to grasp onto is the dominant ethical framework in one’s own country or social group, either absorbing that framework or reacting against it in rebellion. As neoclassical economic models are static and unworldly, additional, personal moral frameworks can be inserted into or drawn out from within the model to create an “object lesson”. Economists’ ethical commitments complement, extend, and/or disambiguate the quantitative analyses that they present to other economists, the public, and policymakers.

Adam Smith’s ethical innovation in Wealth of Nations that resonates to this day is that in order to achieve the “good” as a society or economic actors, everybody (or most people) should be openly pursuing their own self-interest and competing with each other on markets, which in some sense is a contradiction or a fundamental minimization of most religious ethical systems that stress the “Golden Rule”, i.e. loving thy neighbor as thyself. While it is often pointed out that Smith’s “Theory of the Moral Sentiments” is equally a statement of Smith’s own moral philosophy, it is his “not out of the benevolence” statement within Wealth of Nations that has lived on and used as a justification for ignoring the Golden Rule by economists and advocates of unfettered capitalism.

There are a few excellent, but generally under appreciated points in your essay, which I would like to see expanded upon.

First, the idea that ‘leftists’ are engaging in ‘special pleading’ … In engaging the flawed model of the conservatives (budget MUST balance, just not yet please), they are implicitly ceding intellectual power to them which, as you can see by the Republicans’ intellectual leader, Paul Ryan, is a pretty low bar already. A parallel would be feminists’ battle for equality (which I support) by trying to ‘out-man’ the men (which, again, plays the wrong game, and funnily enough, doesn’t lead to a path of predictable results). The public explicitly accepts austerity as a core requirement. The fact they do so without question is a success of the conservatives, and the ferocity with which they push their ideas. Many progressives are in this camp, they just don’t seem to realise it. If progressives want to change the acceptance of flawed ideas, best not agree with them …

Second, the idea that a better society could be achieved by dispensing with government management of the economy has been, and still is, remarkably successful. Yet, it is exactly this outsourcing of demand management policy (alongside the myths that still prevail about economic policy cause & effect) that have demonized fiscal policy for well over a generation now, have resulted in the crisis we now find ourselves in, and what is impeding sensible policy response. What we have had, then, is a gross financialisation of developed economies in particular without any thoughts as to it’s ramifications and sustainability, and in a genuinely unaccountable way. Governments have washed their hands of championing public purpose, and now wonder why they have such massive unemoyment problem in what has become a gutted set of economies.

Although truly appreciative of the comment, “The relationship of the disciplines of economics and philosophical ethics is much overlooked but crucially relevant to these matters,” frustrating is the lack of any positive conception of economics offering an alternative to neo-classicism presented in the article. Mentioning Gramsci is nice, but could Michael Hoexter please provide more. This is not meant in the usual internet commentary manner of sarcasm, but as an honest request.

This piece refers occasionally to MMT and Post-Keynesian economists who are working on an alternative to neoclassicism. MMT, for instance, assumes that complex economies and markets are embedded in a social system that includes a state that has the capacity or potential capacity to issue a currency and manage aggregate demand as well as employment levels. Most post-Keynesians including MMTers have a more realistic theory of banking than neoclassicism. I recommend that you read Randy Wray’s multi-part “MMT Primer” above for a fuller perspective of the positive contribution of MMT or Bill Mitchell’s Billy Blog or Steve Keen’s Debt Deflation blog. To summarize all of this work in one blog post is too much to ask and would distract from the focus of this particular piece (of which you have only read half, anyway).

“. . . . frustrating is the lack of any positive conception of economics offering an alternative to neo-classicism. . . “

As Michael Hoexter says, MMT provides a positive conception of economics. I’ve outlined the components of what I call the MMT knowledge claim network (KCN) here. You’ll notice the callout and emphasis on the social/value gaps MMT aims to close including the Goal of fulfilling public purpose at the top. The defining vision is that MMT is Economics for The Public Purpose.